As of 6/17/2026
Why Warsh’s first meeting is about the yardstick and the message, not the rate
On Wednesday the Federal Reserve held the federal funds rate steady, leaving it in the range of 3.50 to 3.75 percent where it has sat since last year. The decision surprised no one; markets had priced a hold at roughly 97 percent going in. The decision was never the story. The story is that this was Kevin Warsh’s first meeting as chair, and Warsh has indicated that he may seek to change not only what the Fed decides but how it judges the economy and how much it explains itself. Two of those changes matter more for portfolios than any single quarter-point move: the yardstick the Fed uses to measure inflation, and how much it tells markets in advance. Both may make the Fed more difficult to anticipate.
Same Economy, Three Different Inflation Rates
Chart 1. The measure you choose decides whether inflation is near target or well above it.
Ask how much inflation there is right now and you get at least three defensible answers. For the twelve months through April, headline PCE ran at 3.8 percent, lifted by the energy spike that followed the spring conflict in the Middle East. Core PCE, which strips out food and energy, sat at 3.3 percent. The Dallas Fed’s trimmed mean, which each month discards the largest price moves at both ends rather than a fixed set of categories, came in at 2.3 percent, within shouting distance of the 2 percent target. Same economy, same month, a full point and a half between the highest and lowest reading.
This is not a footnote under Warsh. At his confirmation hearing he said plainly that the measures he prefers are trimmed averages. Applied consistently, that preference could lead the Fed to describe inflation as closer to target at a moment when the headline number says otherwise. We take no view on which gauge is most appropriate. Reasonable economists disagree, and the trimmed mean has a respectable record as a guide to the underlying trend. The point for allocators is narrower. When the chair changes the yardstick, the same data can support a different policy story, and the bar for what counts as progress moves with it.
The Market has Already Moved
Chart 2. Futures price a drift higher, while the Fed’s March dots pointed toward a cut.
While the measurement debate plays out, the market pricing appears to have shifted. Fed funds futures imply a policy path that drifts higher from here, toward roughly 3.9 percent by the middle of next year, rather than the cuts that consensus expected only a few months ago. This represents a notable change: the market expectations appear to have moved away from an easing outlook. Coming into this week, though, the Fed’s standing projections from March still pointed the other way, toward a modest cut by year-end. The distance between what the committee had last guided and what the market was pricing is exactly the kind of gap that forward guidance was built to close, and Wednesday’s new projections were the first test of whether the committee would move toward the market or hold its ground.
The committee has not been speaking with one voice. At the April meeting the vote to hold was 8 to 4, the most dissents on a single decision since 1992, with one governor pressing for a cut and others objecting to language that kept further easing on the table. A divided committee may be harder to compress into a tidy forward signal, which is part of why Warsh has argued for offering less of one. Less guidance does not make the disagreement disappear. It moves the work of resolving it from the Fed’s communications onto the market’s own pricing, one data release at a time.
The Committee Moved Toward the Market
The answer came quickly, and indicated a shift toward tighter policy expectation. The committee voted unanimously to leave the rate at 3.50 to 3.75 percent, but it stripped the easing bias out of the statement and retired the language that had hinted at cuts to come. The projections moved the rest of the way: the single 2026 cut the committee had penciled in back in March was gone, nine of the eighteen forecasts now saw rates higher by year-end, six of those projecting two hikes, and the committee lifted its own year-end inflation projection to 3.6 percent from 2.7 in March. The Fed had closed almost the entire distance to a market that spent the spring pricing the opposite of a cut.
Chart 3. The June projections erased the March cut and closed most of the gap to the market.
At his first press conference, Warsh owned the change rather than softening it. He acknowledged the statement looked different, said it carried no forward guidance because guidance was poorly suited to the current moment, and noted it was shorter and simpler, trimmed to roughly a third of its former length. He confirmed he had withheld his own dot because he does not find the exercise useful, and he announced a set of task forces to review how the Fed communicates along with its inflation framework, its data, its balance sheet, and productivity, the clearest sign yet that the overhaul is a program rather than a one-meeting gesture. On the target he gave no ground, reaffirming the 2 percent goal and saying he saw no reason to revisit it until the Fed had actually delivered on it. For a committee that has run above target for five years, that was less a forecast than a statement of intent.
Strip away the forward guidance that has anchored markets for most of the past fifteen years and one potential outcome is that each inflation and jobs report carries more weight, because the Fed has told you less about how it will respond. The range of plausible outcomes around any given data release may widen, and volatility around the data may increase with it. That is not a forecast of crisis. It is a description of an environment in which the reward for correctly guessing the Fed’s next sentence falls, and the reward for being diversified across drivers that do not all depend on the Fed’s reaction function rises.
Positioning
For advisors, the practical implication is less about predicting Warsh and more about not needing to. A portfolio whose results rely heavily on Fed signaling may have been better suited to the world of the past decade and may be less suited to the one Warsh is describing. A portfolio built to absorb a wider range of rate and inflation outcomes, with return drivers that are not all keyed to the same forward signal, may be more durable under such conditions.
Wednesday delivered the first read on that framework. The rate did not move, but the easing bias is gone, the dots have given up on a cut this year, and the chair declined to submit a projection of his own. The direction of travel was set before he said a word: a chair who wants to guide markets less, judging inflation by a gauge that sits closer to target than the headline number does. The decision was the easy part. The regime is the story.
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